Dear Dagen: Keep the Big Picture in Your Portfolio

Maybe you can help us. We're a married couple in South Carolina. He's 72. She's 63 and still working. The market moves ahead a day or two, and then the profit-takers clean it out. We have been told to invest for the long haul, but our long haul is getting short. Should we take profits if we have a stock that has gained a few dollars?
-- Lillian Bird

Work. Family. Friends. Maybe a bowling league.

You've probably got a dozen or more things in your life that require your time and energy.

Worrying about the market and your portfolio doesn't have to be one of them.

If you find yourself constantly fretting over every stock you own and wondering if you should sell, hold or scream, the following three financial advisers suggest some ways to more easily manage your life and portfolio.

Ron Roge: The Big Picture

First, take a step back and look at everything you own, rather than fixating on specific stocks. "You probably need to focus on your overall portfolio instead of the individual stocks that aren't performing. This is a big mistake that lots of people make," says Ron Roge, an adviser with R.W. Roge & Co. in Bohemia, N.Y. "If you have a properly diversified portfolio, there are things that aren't going to be performing when other things are doing well."

Remember the late '90s? Big, boring consumer stocks such as

Philip Morris

(MO) - Get Report

couldn't keep up with tech names such as

JDS Uniphase

(JDSU)

. In 1999, Philip Morris was actually down 54.7%, when JDSU was up 830%. But if you had dumped everything and invested only in tech, you would have ended up with a portfolio that lacked diversification. It's one thing to sell a stock that's broken, such as the bankrupt

Kmart

, but it's another thing to unload it if it's not doing well over a short period of time. If you start selling

all

of your tech holdings today, for example, you could be getting out at the bottom.

"If you wind up pruning things that aren't performing, you wind up chasing performance and narrowly focusing your portfolio. Your portfolio can actually become more volatile," says Roge. "It's the mixture of those different investments that help control the overall volatility of the portfolio."

Instead, you should take a look at your entire portfolio and its overall return. "That's what's important," says Roge.

Ask yourself: Do you have a mix of tech, health care, financials and so on?

Once you have a better picture of your portfolio, you can decide if you're still dealing with too much volatility. You can reduce those swings by introducing bonds and cash to the mix. "You can then get your portfolio to the point that you're sleeping well at night," Roge adds.

Jim Budros: How Long is Long-Term?

You should also think about protecting the money that you will need in the next five years. "Long-term, for better or for worse, is more than five years," says Jim Budros of Budros & Ruhlin in Columbus, Ohio.

Here's one way to look at it: As a couple, your joint life expectancy is almost 24 years, based on the Internal Revenue Service's life-expectancy tables. You have to plan for living more than 20 years. That means about one-quarter of your portfolio should be set aside for short-term needs and the remainder could stay in the stock market.

The cash that you'll need for short-term spending should be in a safer investment such as a money market fund or a short-term bond fund. The remainder should be invested in the stock market, as long as it's not all put in a handful of stocks in the same sector.

Robert Levitt: A Plan for Selling

More specifically, if you're worried about losing money in the stocks you own, there is a way to limit your downside. Robert Levitt of Levitt Capital in Boca Raton, Fla., suggests using what are called stop-loss orders.

A stop order is an order to buy or sell a security at the market price once the security has traded at a specified price. A stop order

to sell

is set at a price below the current market price and is used to protect your profits or limit your losses on a security you own. "You can protect your downside and you aren't forced to realize capital gains today," Levitt says.

Say you own 100 shares of Philip Morris. It's currently trading around $53 a share. If you want to limit your downside to an 8% drop, you can put in a stop-loss order that says sell if the stock hits $48.76 a share. That trade will be executed at the prevailing market price, which could be above or below that so-called stop price.

But stop-loss orders can complicate matters. You can put in a stop-loss that's good until you cancel it. But that order won't last forever. At Charles Schwab, for example, that order will only last 60 days. Then you will have to issue another one.

Moreover, a drop in a stock's price may be a sudden one-time event and you lose upside by getting out. And if a stock keeps going up, you will have to raise the stop price on your order to maintain downside protection.

At the end of the day, you might realize that this constant portfolio management is too complicated and time consuming. If that's the case, you can always start buying mutual funds.